Monday, September 19, 2011

Daily Deal Sites

Whenever a venture is highly successful, it invites competition. The more public that success, the greater the competition. This happened with the car companies in the early 20th century...and is happening now with so-called "daily deal" sites in the early 21st century. (Did you know that the sub brands such as Chevy and Lincoln were once totally separate car companies?)

Groupon is the market leader but LivingSocial is coming on strong. (I subscribe to both, although I am personally biased in favor of Groupon and take advantage of their deals more often.) In a Wall Street Journal article I read today, it stated that there were 530 "daily deal sites nationwide". 530!! Wow. I had no idea. The article also stated that ~1/3 of them, or 170 sites, have been sold or shut down in 2011. That was fast! I thought most of them were created in the past 1-2 years. Talk about a trajectory!

Anyway, it looks like Groupon is having the same problem AOL had some years ago. Paying more and more for subscribers. Their costs incurred in signing up a new customer have nearly tripled in the past year. Yes, tripled. With greater competition comes higher costs. It also helps to have had a ton of venture capital poured into your coffers in the past year. You can't spend what you don't have. (Well, not quite true. My mother said she didn't have any money but darned if she didn't show off her new Kohl's purchases. She had a Kohl's credit card. So yes, credit allows you to spend what you don't have.)

The concern is also that subscribers will get tired of getting numerous similar emails on a daily basis and subsequently, unsubscribe from the offers. (I mean, how many restaurant discounts can one take advantage of?)

The shake out in the daily deals market will continue. It's inevitable. Sometimes the first to market prevails...and sometimes they don't. I place my bet on Groupon.